$75k pension exemption limit still ‘a possibility’ under Labor
While the proposal previously floated by Labor to cap the pension exemption at $75,000 per year would now be highly unfeasible with the transfer balance cap now in place, a law firm has warned not to “discount it as a possibility”.
Back in 2014, Labor announced a proposal to tax superannuation earnings above $75,000 a year at 15 per cent.
Shortly after the Coalition handed down the budget for 2016, Shadow Treasurer Andrew Leigh also touted the $75,000 pension exemption cap as an administratively easier option compared with the transfer balance cap and the controversial $500,000 lifetime non-concessional cap, which was later dropped.
While the Labor party has not made any reference to the $75,000 cap for exempt pension income recently, there has been commentary by Treasurer Chris Bowen earlier this year about reducing the concessions in relation to superannuation for those with balances in excess of $1.5 million.
Speaking in a webinar, DBA Lawyers senior associate William Fettes said its difficult to say what a $75,000 pension exemption cap would look like given that the transfer balance cap regime is now in place.
“Are they really going to overturn the new architecture for the transfer balance cap and how exempt income is impacted by the transfer balance cap? It would make more sense if they want to restrict the concessions, perhaps to just reduce the general transfer balance cap, or make associated changes like that,” said Mr Fettes.
He said there is unlikely to be any “realistic feasibility” with implementing a direct cap of $75,000 for pension income exemption each year.
“[However], we can’t discount that possibility entirely, but it seems that would be a really big undertaking [and] that it would receive quite a lot of push-back from the industry,” he said.
Smarter SMSF chief executive Aaron Dunn has also previously predicted that Labor may simply reduce the transfer balance cap down to $1.5 million as this would essentially align with its original plans for a $75,000 earnings threshold, based on a 5 per cent rate of return.
“Would we see a reduction from $1.6 million to $1.5 million, maybe potentially even lower? When we [look] at how many other things are linked to the general transfer balance cap, we could see a flow-on effect that occurs there as well,” said Mr Dunn previously.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.